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1. ACCOUNTING AN-INTRODUCTION

1. Accounts: It refers to a places, where the business transaction are recorded.

( A record of person, thing or item of income or exps.)
2. Accountancy:- It refers to a systematic knowledge of accounting.
3. Accounting:-It is a business language (ianguage of recording business transaction)
4. Transaction:-It means “exchange ” in which each Participant “Receives or sacrifice”
some values .
5. Event:-it is happening /end result of any transaction (appear in the balance sheet)
6. Procedure of accounting:-
 Recording:- Means Journalising of business transaction in orderly manner.
 Classifying:- Means Grouping of similar nature of recorded transaction at one
place (preparation of ledger)
 Summarizing:- means” preparation & presentation of classified data.
 Like:- preparation of (i) Trial balance (ii) P & L a/c (iii) Balance Sheet etc.
 Analysing:- Means” methodical classification of item given in the Financial
statement.
Ex: Classification of: Fixed Assets, Current Assets, Long term liability, short-
term liability etc.
 Interpreting:- Means” Explanation of analysed date in user friendly language.
 Communicating:- Means” Transmission of “analysed summarized &
interpreted information to end user.
7. Objective of Accounting:-
 Systematic recording of transaction: (Book keeping)
 Ascertainment of Results (profit / loss position)
 Ascertainment of financial position (Balance Sheet)
 Providing information to users (Financial Report)
 To know the solvency position

8. Function of Accounting:-
 Measurement:- It measured the past performance of business and depicts
current financial position.
 Forecasting:- It helps in forecasting future performance & position using past
data.
 Decision Making:-It provides relevant information to user for decision
making.
 Comparison & Evaluation: It helps in comparing actual performance with
previous one and helps in taking remedial action.
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TOPPER'S INSTITUTE Accounts Basic

 Control : It also identifies the weaknesses of operational system and provides
feedback.
 Government Regulation & Taxation:- It provides relevant information to
Government, to exercise control as well as for collection of tax revenues.

9. Sub-Field or Branch of Accounting

 Financial Accounting
 Cost Accounting
 Management Accounting
 Social Responsibility Accounting
 Human Resource

10. User of Accounting Information:-

Internal:- Board of director, partner, Manager, Officer etc.
External:- Investor, Lenders, Supplier, customer, Government, employee.

11. Limitation of Accounting:-

1. Non-Monetary Factors are not considered.
2. It deals in past data, Not in future data.
3. It ignores changes in Money factor (Inflation)
4. Some accounting principle conflicts with each other.
12. Book Keeping:-
 It is part of Accounting
 It is mainly concerned with Recording & Classifying of transaction.
13. Characteristics of Financial Statement:-
1. Understandability:- It must be understandable by users.
2. Relevance:- It must be relevant to the decision making needs of users.
3. Reliability:- Information must be reliable (free from material error).
4. Comparability:-Information must be comparable, to know the trends, in
performance & position.
5. Materiality:- Financial statement must disclose all material (Important) item
separately.
6. Faithful Representation:- Information must represent faithfully, all the
transaction & events.
7. Substance over Form:- information must be recorded& presented in
accordance with their substance and economic reality not merely by their legal
forms.
8. Neutrality
9. Prudence:- Use to your own skill
10. Full& Fair Disclosure
11. Completeness

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2. ACCOUNTING CONCEPTS, PRINCIPLE,

CONVENTIONS
Accounting concepts: it may defined as the rules of action or conduct, which are derived from past
experience & practices and when they prove useful , it is accepted as principle of accounting.

This is basically a set of rules, which govern the development of accounting technique.
This guides, how transactions should be recorded and reported.

1. Accounting Concepts/Principle:-
1. Entity Concept:- It states that “ Business has separate identity from its owner
& other Accounting entities.
RESULTS: Personal transactions & Business transactions, and transactions of
other entities are distinguished.
2. Money Measurement Concept:- According to this, only those transaction
which is expressable in terms of money shall be recorded.[ Transactions
which are not able to be expressed in terms of money are ignored.]
EX.Not recorded[1] self generated goodwill[2] loss of profit due to strike etc.

3. Going Concern Concept:-“Known as continuity assumption” This concepts

assumes that Business is a going concern & will continue its activities for the
foreseeable future. (Not applicable on joint venture).
RESULT:[1]Assets are classified as fixed and current.[2] Liabilities are classified as
short terrn and long term etc.
Periodicity, concept:- “Concept of definite accounting period”. According to
4. Periodicity concept: According to this concept “economic life of an
enterprises is artificially split into periodical intervals(know as Accounting
period) to know the financial performances and position of business.
Implication:Expenditure has been divided into capital and revenue.

5. Accrual concepts:- According to this “All revenues & Expenses are recognized
in the year in which they are earned/incurred (Not as Money is
received/paid)

6. Matching Concepts:- According to this, “Expenses incurred, will be charges

in the period in which its related Revenue/Benifite recognized or expired.
This concept calls for adjustment to be made in respect of, Prepaid expenses
Outstanding expenses, Accrued revenue,Unaccrued revenues

7. Cost Concept:- According to this, “Assets should be valued at its “Historical

Cost” (purchase cost) not at its Reliable value or Current value or present
value.
8. Realisation Concept:- It closely follows the cost concept. It states “Any
changes in value of Assets is to be recorded only when business realises it.

9. Conservatism Concept:-[Prudence concept] According to this, anticipate no

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profit but provide for all losses “It means, all the probable losses should be
provided for but not the probable gain.[Assets should be valued at cost or net
realisable value which is lower.(It is an exception to the consistency principle.)

10. Consistency Concept:- According to this “whatever Accounting policies,

procedure or Method selected for transactions(whether logical or illogical)
should be followed year after year,to make the financial statement
comparable.

11. Materiality:- An exception of full disclosure principle. It states” All items

having significant economic effect on business should be disclosed in
Financial statement.

Implication:(1) Small amount of capital expenditure is charged as revenue.

(2) Reporting to top management is given in approximation.
12 . Full disclosure principle: It means financial statement should act as means
of conveying not concealing.Accordingly financial statement should
disclose all the information whether material or immaterial.( The practice of
Appending notes has developed as a result of this concept.)

13. Dual aspects concept:- It states every transactions effect at least two item.
Hence, both should be recorded.
( Double entry system is based on this concept)

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3. ACCOUNTING STANDARD

1. Accounting Standard:- Means, standarised way of accounting

2. Date of Formulation of Accounting standard board 21-4-1977.
3. Accounting standard in India is pronounced by I.C.A.I
4. Number of A.S. pronounced: 31 (Thirty one)
5. Number of A.S is in force : 30 (Thirty)
6. Why A.S: Because It ensures.
(i) Transparency (ii) Consistency (iii) Comparability.
7. Benefits of A.S.
(i) It harmonise accounting policies
(ii) It eliminates Non-Comparability
(iii) It improves the reliability.
8. Limitation of A.S.
(i) It can’t over ride the statute (law)
(ii) It makes choice difficult
(iii) It increases the Rigidity.

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4. ACCOUNTING POLICIES

1. Accounting Policies:- It refers to the principle and Method of applying those

principle.
2. Selection of accounting policies:- It is based on following factor:
(i) Prudence:-
(ii) Substance over form:-
(iii) Materiality
3. Change in Accounting policies:- changes is justified
(i) To comply with A.S.
(ii) To comply with law
(iii) To improve the presentation of Financial statement.
Note:- In appropriate accounting policy:- May understate/ over state the
performance & position of business.

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5. MEASUREMENT DISCIPLINE-
VALUATION
PRINCIPLE, ACCOUNTING ESTIMATES

1. Measurement:- A vital aspects of accounting.

 Transaction & events are measured in terms of money.
 Elements of Measurement:
(i) Identification of objects & events to etc Measured : (Information)
(ii) Standard/scale of measurement: (money)
(iii) Dimension of Measurement scale: It should be stable overtime (It should
be Quantity Not Money)
2. Valuation principles: An asses has four values
(i) Historical cost :- Means acquisition price.
(ii) Current cost:- Current market price of same new assets.
(iii) Realisable value:- Current resale value of old Machine purchased.
(iv) Present value:- As we know, An assets earns revenue for us in future period.
So, present value means” present discounted value of future cash inflow.
3. Accounting estimates:- There are certain item, where we cant use the valuation
principle for valuing those.
 In case of those item, we adopt certain estimates on the basis of present
situation & past experience.
Ex: Like, provision for bad debts / discount on debtor/creditor.
 Changes in accounting estimates:- It means the difference arises between
(i) certain parameters estimates earlier & restimated during current
period or
(ii) Actual results achieved during current period.

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6. BASIC ACCOUNTING PROCEDUE

JOURNAL ENTRIES
1. Journal:- This is a book of original entry
 It is also known as subsidiary book.
 A Journal has Five Column (5 Column)
Column: 1 = Date
2 = Particulars
3 = L.F. (Ledger Folio, Filled at the time of posting)
4 = Debit amount
5 = Credit amount
 Journalising of transaction is based on double entry system.
 This system specifies, every transaction has two fold “one is debit other is
credit.
 Debit Means:- Increase in Assets
 Credit Means:-Increase in Liability.

2. Classification of Accounts

Personal Real Nominal

1. Personal:- It relates to person only:

(i) Natural personal:- Means Natural human beings.
(ii) Artificial Personal:- Name of business entity.
(iii) Representative:- It represents Natural /artificial person: like.
Capital, drawings, personal income tax, Debtor, creditor Receivable,
payable, outstanding, Accrued,unaccrued, advance, prepaid, unexpired,
Due, receivable, payable ,borrower, loan etc.
2. Real Accounts:- It includes all assets whether tangible or intangible(Excluding
those which has been covered under personal a/c)
3. Nominal Accounts:-All expenses/ losses/Income) Gains
(All the items appear in Trading P/L a/c like: purchase, sale, purchase return,
sale return. Direct exps/indirect expenses, losses etc. ( Any item appearing in
the B/S is not nominal.
 Provision for Depreciation Real A/c.
 Provision for Bad debts/discount etc. personal a/c.

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LEDGER
1. Ledger:- It is a secondary/principal book.
2. Posting: It is a process of transferring transaction recorded in journal into ledger.
3. Opening Entry:- It is a journal entry by which various assets & liabilities,
appearing in the B/s of previous year are brought forward in the books of current
year. ie. (To b/f or By b/f)
4. Balancing:- Ascertainment of difference between total debit and total credit.
 The balance of account is known by the side which is higher.
 The balance of an account is recorded on the side which is shorter.
5. Column of ledger: There are „8‟ eight column in ledger.

SUBSIDIARY BOOKS(specific journal)

1. Subsidiary books:- It is a book of original/prime entry (journal)
2. Types of subsidiary books
(i) Cash Book:- It records all cash/Bank receipts and payments.
(ii) Purchase Book:- It records all credit purchase of goods dealt in.
(iii) Purchase return book: It records the return of credit purchase of goods
dealt in (Purchase return book is prepared on the basis of Debit Note.)
(iv) Sale book: It records the credit sale of goods dealt in:
(v) Sale-return book: It records the return of credit sale of goods dealt
in.(This book is prepared on the basis of Credit Note.)
(vi) Bills receivable book: It records the details of bills receivable.
(vii) Bills payable:- It records the details of bills payable accepted.
(viii) Journal proper:- It records
(i) Opening entry
(ii) Closing entry
(iii) Transfer entry
(iv) Adjustment entries
(v) Rectifying entries
(vi) Dishonour entry etc.

CASH BOOKS
1. It is subsidiary as well as principal book.
2. Types of cash book:
(i) single column cash book: It records cash transactions only.
(ii) Double column cash book: It records cash transaction & discount
allowed/received.
(iii) Triple column cash book: It records cash, discount & Bank.
( CONTRA Entry is passed only in case of Triple column cash book.)
3. Petty cash book:- It records the petty cash expenses
 It is prepared on Imprest system
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 The balance of petty cash book is an assets.

 It records only small day to day expenses.

CAPITAL & REVENUE EXPENDITURE/RECEIPTS

EXPENDITURE: Means the cost incurred for the purpose of earning revenue.
Expired Expenditure: The part of expenditure which is consumed during the accounting
period.
(a) Expense: The portion of expired cost which contribute to revenue.
(b) Loss : The portion of expired cost which doesnot contribute to revenue.

The expenditure has been classified as capital, Revenue, deferred revenue on the basis of
Going concern assumption.
1. Capital expenditure:- It is a expenditure incurred
 To acquire or bring into existence an Asset or
 To bring into existence an advantage or benefit of enduring nature or
 To increase the productivity/earning capacity
(i) Its benefit is derived in more than one accounting period .
(ii) The benefit is almost certain .
(iii) Accounting treatment :It is debited to respective asset account
.
2. Revenue expenditure:- It is incurred
 To maintain the productivity /earning capacity of business.
 To carry out operating activities in normal course of business.
(i) Its benefit is derived in one accounting period.
(ii) Accounting treatment: It is debited to Trading, P/L.

3. Capital Receipts:- Those receipt, not in revenue Nature.

 Not earned in ordinary course of business
4. Revenue Receipt:- Those receipt, which arises in ordinary course of business.
5. Deferred revenue expenditure:- It is not a capital expenditure, but presumed that
Its benefit would be derived in More than one accounting period.
 Benefit is not certain.
 Accounting treatment:-Such expenditure is charged over a period of 3 to 5
years.

Some examples of capital exps/Revenue expenses/ Revenue Receipt / Capital Receipt

(i) Wages/erection/installion charges for Machinery: capital
(ii) Expenses on Trial run:Capital
(iii) Money spent to reduce working expenses:Capital
(iv) Legal expenses to depend a suit, claiming that factory site belong to plantiff :
Revenue
(v) Amount spent for annual repairing: Revenue

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CONTINGENT ASSETS/CONTINGENT LINGILIT

1. Contingent assets: A possible/probable inflow of economic benefit to business.
 Not recognized in financial statement.
 It is disclosed to approving authority(BOD)
2. Contingent liability: A probable obligation
 It is disclosed in foot Note of Balance Sheet.
3. Provision: Certain obligation of uncertain amount
 It is measured by using a substantial degree of estimation.
4. Liability: certain obligation of certain amount.

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7. BILLS OF EXCHANGE
1. Negotiable Instrument (Transferrable)

Bill of Exchange Promissory Note

1. Order Instrument Promise instrument
2.Written by creditor Written by Debtor
3.There are three parties There are two parties
(i) Drawer (i) Maker
(ii) Drawee (ii) Payee
(iii) Payee
4.Liability of Drawer is secondary Liability of Drawer is primary
5. It requires acceptance It does not
6. The Drawer and payee can be same The Maker & payee can’t be same.
person
7. It can be payable to Bearer It can’t be payable to bearer (Sec. 31(2) of
RBI ACT)
8. It require protesting for dishonour. It doesnot require any protest.
9. Notice of dishonour must be given to No such Notice required for Maker.
all person (including drawer)

2. Time Bill and Demand Bill:-

(i) Time Bill:- The instrument where time for payment is Mentioned.
(ii) Demand Bill:- Time for payment is not Mentioned.

3. Due Date of Bill:-

Time Bill:-
(i) After sight bill starting date “Date of Acceptance”.
(ii) Other bill starting date “Date of Drawer”.
Note: 3 days for grace are added to due date to arrive “Date of Maturity”.

4. Discounting of bill:-
 The Act of selling bill before its Maturity.
 Discount chares (Interest) is deducted from bill amount form “unexpired term
of bill”
 Such discount is an expenses for seller and gain for purchaser

5. Endorsement of bill:-
Means The transfer of bill by writing person’s name on the Face/back of bill
Endorser: who endorse the bill
Endoreser: who endorse the bill
Endorsee: To whom bill is endorsed

6. Dishonour of bill:- (For Non payment)

Drawer books:- Drawee a/c------or (Billamt + N. Charc)
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To Bank/endorsee/B/R/BSFC
Drawee books: Drawer a/c----------credit (Bill amt N.C)
B/P is debited

7. Nothing Charges
A Fee charged by Notary public for recording the Fact of dishonour.
 Who pays initially: The holder of bill (Drawer, bank etc.)
 Who bears : The Drawee of bill

8. Renewal of bill
 Means cancellation of original bill and drawing of fresh bill on the request of
Drawee.
 New bill is written for
Total bill amount (+) Nothing charges (if any) (+)
Interest for extended period (if any)
9. Retirement of bill:-
 Means making the payment of bill before maturity
 Inti is allowed, at an agreed rate for unexpired period.

10. Insolvency of Drawee (Acceptor):-

 The amount, which could not be recovered is debited to “Bad debt” (Drawer
books)
 The amount, which could not be paid is credited to “Deficiency” a/c (Drawee
books)

11. Accommodation bill:-

 It is drawn, “to Meet the Financial needs” of Drawer/Drawee or both.
 On discounting usually payment is shared between drawer and
drawee in agreed ratio
 Discounting loss is also shared by Drawer and Drawee in payment
ratio.

12. Indian bill:-

Means the bill
 Which is drawn in India and payable in India
 Or which is drawn in India on a person Resident in India.

13. Foreign bill:-

Which is not an Indian bill

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8. COMPANY ACCOUNTS

1. COMPANY:-means “An incorporated association” under the company Act 1956.

2. CHARACTERISTICS:- of Company
(i) Incorporated association
(ii) Artificial person
(iii) Separate legal entity Company Law bond;
(iv) Common seal

3. TYPES OF COMPANY:-
 Public Co.
 Private Co.
 Statutory Co.
 Holding Co.
 Subsidiary Co.
 Foreign Co.
 Listed Co.

4. MEMORANDUM OF ASSOCIATION:- The main document of any company

which consists the information
Like (i) Name of company
(ii) Place of business of Co.
(iii) Nature of business
(iv) The Maximum Capital File Roc.

5. SHARE:- A small unit of Fixed amount of Share Capital.

6. TYPES OF SHARE CAPITAL

1. Authorised (Maximum Cup. Nominal Cap.):-It refers to the amount, stated in
MOA.
2. Issued Capital:- A portion of authorized capital which are issued for
(i) Cast &
(ii) Consideration other than cash
3. Subscribed (Public Purchase) CAP:- A portion of issued capital which is
subscribed i.e.: Applied & allotted.
MIN SUBSCRIPTION:- 90% OF ISSUED CAPITAL
 Minimum subscription „Must be achieved within 42 days from the date
of closure of issue.
 If Minimum subscription not achieved during the specified date. The
application money will be refunded within. Next 8 days otherwise
interest @ 15% p.a. will be payable along with application Money.

4. CALLED UP Capital:- the portion of issued capital which has been called-up.
5. Paid-up Capital:- Portion of Called up Capital received by the Company
within specified date.

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Note:- In share capital A/c, the called up Capital transferred Not the paid-up
Capital.
6. RESERVE CAPITAL:-Portion of uncalled capital which will not be called-up
except in the event of Liquidation.
7. Calls in Arrear:- Portion of Called up Capital, which has not been received by
Company.
Intion Calls In Arrear:-As per table A
Rate = 5% p.a.
Period of Intt: From last date of payment, till the actual date of
payment.
Note:- The Company may waives Intion Calls-In one.]
8. Calls-In Advance:- Portion of subscribed Capital which has not been called-
up but received.
 No dividend is paid on calls-In advance.
 Interest is Paid
 Rate as per Table A: 6% p.a.
 Period: From the date receipt of advance till the date of adjustment to
relevant call.
Condition:- Mandatory to pay; Company Int. on Cells In advance.
9. Underwriting Commission:-
On shares:- 5%. I.P
On Debentures:- 2.5% I.P.
10. BROKERAGE COMMISSION:-
PRIVATE PLACEMNT :- 0-5%
PUBLIC :- 1-5%
Note:- As per SEBI, Brokerage commission will be paid only on public
placement.

TYPES OF SHARES

Equity shares Equity shares

TYPES OF PREFERENCE SHARES

CUMULATIVE:- It carries the right to a Fixed amount of dividend, even in case of

loss/Insufficient profit.
 Dividend on these shares accumulates unless. It is paid in full.
 Arrears of dividend is shown in the balance sheet as a contingent liability.

Non-Cumulative:- It carries the right to a Fixed amount of dividend only in case of profits.

Redeemable preference shares:- These shares are repaid after the Fixed period
 Max period of Redemption; Max 20 years from the date of issue.

Non-redeemable:- The shares, which are not repaid.

 Now, Company is not authorized to issue this shares.

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Convertible preference shares:- It carries the right to get them converted into equity shares.

Non-Convertible:- It does not carry such right.

Participating Preference shares:- It carries the right to participate in surplus profit if any
after payment of dividend to equity shareholder at a specified rate.

Non-participating:- It does not carry the above mentioned right.

COMPANY

Some other kinds of shares:-

1. Right shares:-These are offered to existing shareholder unusually at discounted
price.
2. Sweat equity shares:-There are issued to shareholder in lieu of dividend.
 These are issued without any consideration.
3. Bonus share:- These are issued to shareholder in lieu of dividend.
 These are issued without any consideration

ISSUE OF SHARES

1. Shares may be issued for cash or consideration other than cash.

2. Shares issued for Cash:-
 In this case, the amount may be demanded from shareholder (Applicants) in
full or in Installment.
 Minimum application money.
As per company Act :- 5% of Face value of share.
As per SEBI :- 25% of Issue price.
 If issue price, is called-up in instalment.
 Called-up value of shares are transferred to share capital a/c.
 Dividend is paid as a % of paid-up value of shares.
 When shares are issued at par:- The called-up amount of Face value will be
transferred to sh. Cap.
 When shares are issued at discount:- The called-up amount of face value will
be transferred to shares capital the short amount will be debited to discount
a/c.

Max discount:- 10% of face value of shares.

 When shares are issued at premium:- The called up amount of Face value will
be transferred to share capital. The Excess amount will be transferred to security
premium a/c max premium: UNLIMITED.

 Use of Securities Premium Amount:-

It may be used for only following four purpose
(i) To issue of Bonus share
(ii) To write off preliminary expenses.
(iii) To write off discount/commission on issue of share or debentures.

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(iv) To pay premium on Redemption.

Forfeiture & Reissued of shares

Forfeiture means “taking away, the shares for Non-payment of allotment/calls

money.
In this case shares forfeited are cancelled.
Following accounting entries are passed.
Share Capital a/c – Cr (By called- up value)
Share premium a/c – Dr. (If premium not received)

To calls in arrear/allotment/call (By amount (not received)

To Forfeiture a/c (By amount received except premium)
To discount on issue of shares (discount will be cancelled)

Forfeited shares account shown as an addition to the total paid-up capital until the
forfeited shares are reissued.
Forfeited amount will not be transferred to capital Reserve until the concerned shares
are reissued.

Re-issue of shares forfeited

A forfeited shares can be issued at para/at discount/at premium.

Minimum Reissue price:- “The loss/discount on reissue cannot exceed the amount
forfeited.
1. When shares issued at par/premium
Min. Reissue price face value of (-) Amount called-up cap forfeited.
2. When shares issued at discount
Min Reissue price = issue price of – amt forfeited called-up cap.

Calculation of profit on Reissue

 Profit will be calculated on forfeited shares only when they are reissued.
 Profit on Reissue = Amount forfeited on reissued shares (-) loss on reissue
regarding those shares.
Ex:- Share forfeited = 1000, Amount forfeited = 6000 called-up value = Rs. 9
per share.
Loss on Reissued = Face value of called – Reissue price up capital
9 - 8 = 1
Total loss - 1000 ×1 = 1000
 Profit on Reissue = 6000 – 1000 = 5000 (will be transferred to capital Reserve).

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Important Note

 On forfeiture share cap. Will be debited = share forfeited × called up value.

 Amount to be forfeited = Share forfeited × (amount received per share – Security
premium per share)
 Amount to be shown in share forfeiture a/c =
For share yet not reissued × Amount forfeited per share.
 Profit on Re-issue = Forfeited amount on Reissued share (-) loss on reissues.

REDEMPTION OF PREFERENCE SHARE

Redemption:- Means, repayment of amount.

Maximum period of redemption:- 20 years from the date of issue of share.
The date of issue of share.
Only fully paid up preference shares can be redeemed.

Preference shares are pre-fixed with %. It means “Fixed Rate of Dividend” which the
preference shareholders are entitled to.

SOURCE OF REDEMPTIO OF FACE

Value of Preference Share

1. Out of divisible profit PIL, 2. Out of proceed of fresh issue

Gen Res, Dividend alisation of shares
fund, workman pensation “NOT DEBENTURE”
fund
Proceeds Means:-
Fov. Issue price Proceed means
Sh. issued at par 10 10 10
Sh. issued at discount 10 9 9
Sh. issued at premium 10 12 10

Premium can’t be used to redeem face value of pref. share.

Calculation of Minimum No. of shares to be issued for

Redemption = Face Value + premium to be redeemed (-) company fund that can be used.

Creation of capital Redemption Reserve (C.R.R) = value of pref. share to be (-) proceed of
fresh issue of shares.

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DEBENTURE

 A debenture is a Bond issued by Company under its seal acknowledging its debt and
containing provision regards payment of interest/Repayment of principal.
 Debenture is a form of public borrowing.
 Debenture holders are treated as creditors of company.
 Issue procedures of debentures are same as in case of shares.
 However loss on Redemption is recorded at the time of issue.
 Loss on Redemption = Amount of premium paid on Redemption (irrespective of fact
that Debenture were issued at par/discount/premium)
 Loss on Redemption will be charged to Revenue over the Tenure period of debenture
(Matching Concept).
 Discount on issue is charged to Revenue over the Tenure (Period) of debenture
(Matching Concept)
 Debenture can’t be forfeited for Non payment.
 Debenture can be issued as an collateral security (Additional Security)
Entry:- Debenture Suspense debited and % Debenture Credited.
 Debenture is prefixed with % :- It shows the rate of interest, on debenture .

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9. CONSIGNMENT

Contents to Study:-
1. Definition Part
(i) Consignment (ii) Consignor (iii) Consignee (iv) Performa invoice (v) Account sale
(vi) Selling (Recurring) exp. (vii) Non-recurring (viii) Loading (profit) (ix) Stock
Reserve.

2. Calculation Part
(i) Commission (ii) Closing stock (iii) Normally abn. Loss (iv) Stock Reserve (v)
Loading (vi) Profit on consignment (vii) Amount due to consignee

(i) Consignment:- It is a transaction of sending goods from ne person (owner) to

another person (Asent) who sold the goods on behalf of owner.
(ii) Consignor:- (principal owner) who send the goods to Agent to sell.
(iii) Consignee:- The agent (Receiver of goods) ,
Note: Only possession of goods “Not the ownership” is transferred. All the
risk(Exps) and Reward (Income) remains with consignor.
(iv) Performa Invoice:- It looks like Invoice, send by consignor to consignee.
(v) Account sale:- A statement sent by consignee to consignor.
Contents:(i) Sale made (ii) Expenses incurred (iii) commission earned (iv)
Advance given (v) Balanced due etc.
(vi) Expenses on Consignment:-
(a) Non recurring/Non selling:- Expenses incurred in order to bring the
goods to consignee is place of business.
(b) Recurring/selling:- Expenses incurred at consignee place, for selling the
goods.
Ex: Godown rent, Godown Insurance Advertisement etc.
(vii) Loading(profit):- The profit dement added to cost(purchase price) at the time
of sending of goods by consignor.
(viii) Stock Reserve:- The loading amount on closing stock at consignee’s place.

CALCULATION PART:-

(ix) Commission :- It is the remuneration provided by consignor to consignee in

consideration of service rendered.
Types of Comm.

Ordinary commission Del-credre comm Overriding com.

(a) Ordinary Comm.:- Usually paid as a fixed % of sale at invoice price,

union specified otherwise.
(b) Del-credre commission:- Additional commission paid by consignor to
consignee for bearior the loss on account of BAD DEBTS only.
 Paid as % of Total Sale (cash sale + credit sale) union specified
otherwise.
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(c) Overriding Commission:- Extra commission on Extra effort of

consignee.
 Paid as % of surplus (S.P. (-) 1.P)
(x) Loss
(i) Normal Loss (unavoidable)
(ii) Abnormal Loss(Avoidable)
 The loss, which is inherent excess of Actual loss over in Nature of
goods and Normal loss predicted in Advance.
 Treated as part of cost:- Not treated as part of cost charged to
General P/L A/c.
(xi)
 Valuation of Closing Stock /Abnormal loss in Consignee’s godown
Cost P.U. = Purchase Cost + All Non-recuminor exps
Total unit (-) N. loss unit
Value = Closing stock/Abn. loss unit × cost per unit

Valuation of Abn. loss in Transit

Cost P.U. = Purchase Cost + consignor exps
Total unit (-) N. loss unit (Always Nil)
Value = loss unit × cost per unit

(xii) Stock Reserve:- Closing Stock at I.P(-) Closing stock at cost OR Closing stock
unit × Loading per unit.

(xiii) Profit determination on consignment:-

(Sale Value + Closing Stock (at cost) + Abn. Loss (at cost) (-) (Goods sent (at
cost) +All rewnior /Non rec. exps + comm.)

(xiv) Amount of Remittance by consignee:-

Sale value realized (-) Expenses paid by consignee (-) comm. earned by
consignee (-) Advance paid (if any) or sale price realized.
(-) Expenses paid by consignee
(-) Comm. earned by consignee
(-) Advance paid by consignee
Amount of Remittance

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10. INVENTORY
1. DEF: Inventories are Assets held for
 Resale or
 Use in the production
2. Need For Inventory valuation
(i) To determine True performance (P/L)
(ii) To determine True position (B/S)
3. Exclusion from cost of Inventory
a) Abnormal loss
b) Storage cost
c) Administrative overhead
d) Selling and distribution cost
4. Inventory system
(i) Periodic Inventory system:
 Here Inventory is ascertained by physical counting
COGS = Op. Inventory + purchase (-) closing Inventory
(ii) Perpetual Inventory: Inventory is ascertained on the basis of Records.
 Closing Inventory=Op. Inv + purchase(-) cl. Inv
5. Method of Inventory valuation:
(i)FIFO (ii) LIFO (iii) Average cost Method (iv) Basic stock method
(v)special Identification (vi) Basic stock method (vii) HIFO (viii) NIFO etc
Note: As per Accounting standard-2only FIFO& weighted Average cost Method can
Be applied.
Note: Inventory will be valued at cost or N.RV which is Lower (As:2 , conservatism
concept)
(a) FIFO: Based on Assumption, that, goods, which are received first are issued First.
Implication:-
(i) Inflationary condition(Rising prices)
COGS: (Lowest Figure)
Closing stock (Highest Figure)
Profit position: Higher (G.P= Sale(-)(COGS)
Widely Accepted by income tax Authorities)
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(ii) Deflationary condition (Decreasing price) opposites of above)

(b) LIFO: Based on Assumption, Goods which are received last are issued first.
Implication:-
(i) Inflationary conditions:
COGS(High) Closing stock (low) profit (lower)
(ii) Deflationary condition opposite of above
Note: Current cost are matched with current Revenue.
(c) Weighted Avg price method:- Here issue price and cost of closing stock is
determined on the basis of weighted Avg cost .
W.A.C = Total cost at the date
Total unit available at the date
Some other points:
(i) If opening stock is understated, the COGS will decrease but profit will
increase –Vic-Versa.
(ii) If closing stock is understated, the COGS will increase but profit
decrease, vice-versa.
(iii) Cost of goods lying with other, like sent of Approval/consignment, etc,
will form part of closing stock.

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11. JOINT VENTURE

1. Definition:- It is a Temporary partnership without the use of firm Name, for limited
purpose.

2. Features of Joint Venture:-

 Short tem partnership
 The members are called co-ventures
 Going concern concept is not applicable
 Accrual concept is Applicable
 No specific Act is there for joint venture
 Doctrine of implied authority is not applicable for co-ventures.
 There is no difference between capital exp./Revenue exp. or direct
exps/indirect exps whatever incurred is expenses/whatever recd. Is income.
 No. Accounting treatment for Abnormal loss of Goods (It does not effect the
Net profit of Joint venture)
 Joint venture a/c is of Nominal Nature.
 Profit or Loss on Joint Venture is ascertained on the end of each specific
venture.
 Joint venture with the other A/c is of personal Nature.
 In case of discounting loss on B/R, Treated as loss of Joint Venture.

3. Method of Recording Joint Venture Transaction:-

(i) Separate sets of books method
(ii) Recording of all Joint Venture transactions in the books of all co-
venturers/one co-venturer.
(iii) Memorandum joint venture Method:
 Profit or Loss Determination on Joint Venture by any method:
(a) Income (sale or contract money recd./goods taken by coventure)
loss Expenses.
 Co-venturers entitlement:- Capital (if any) + exps incurred + profit or (-
) loss.

4. Accounting entry
(i) Separate sep of books method:-
(a) Capital Introduction : Joint Bank --------Dr. to conventurers a/c
(b) Expenses: Joint venture a/c -------------Dr. to J.B. or to
Coventurer (Expenses paid/Goods Introduced.)
(c) Income : J.B. a/c------------Dr.
Co-venturer-----------Dr. Cut agreed price to Joint Venture.

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